As an investor myself, I have a vested interest in watching what’s about to happen politically, economically and socially so I can see if other investors need to be prepared for any pending negative or positive event, and whether certain actions make sense.

With the Reserve Bank expected to cut interest rates next week, RealEstate.com.au has reported a Melbourne estate agent has been telling his potential buyers that now is the time to pull the trigger. “Buy now as if it’s a half a percent cut in May,” they said, “[because] we know that when interest rates go down, prices go up”.

This is a case of a “bush economist” who takes the generality that falling rates lead to higher real estate prices. But if rates are falling because we’re in a recession when heaps of Aussies are losing their jobs, house prices will actually fall with falling rates instead of rise.

Ask anyone who owned homes on the Gold Coast, Palm Beach in Sydney and Toorak during the Global Financial Crisis (GFC) and that’s the story you’ll actually hear.

Australia ran for over 20 years without a recession until the pandemic and its subsequent lockdowns forced one upon us. We’re still luckier than others, though: the Kiwis, for example, have had two recessions since their central bank hit borrowers with too many interest rate rises, and the last recession to hit was the worst since 1991. The bottom line is not to get too confident about economic advice from historical nincompoops.

In many ways, I’m not a normal person. I try to act as a human lighthouse, shining a light on reliable seas at night, or expose tumultuous tsunamis that could crash on financial markets and throw their life onto the rocks.

So, as I illuminate my spinning bulb, what are the big events I’m watching and that you should be made aware of that are approaching in the darkness of the coming week?

Try these:

Tuesday:

Consumer and business confidence readings come out. While they’re important for the RBA to monitor, they only matter to interest rate moves if the indicators collapse, which isn’t expected to happen.

Wednesday:

Wednesday brings the Wage Price Index, which could kill a potential rate cut next week, if we learn that wages have gone through the roof. While economists expect a 0.8% rise, we could see the Reserve Bank spooked if it tilts any higher. Still, I think this is a lower order risk.

Thursday:

Thursday is the ‘make or break’ local figure for rate cut prayers, with the April jobs report due out. While some 20,000 new jobs are expected, if it’s a blowout bigger number, the RBA could renege on the expected rate cut! A rise in the unemployment rate from 4.1% would actually help rate cut chances, while a fall would be bad for rate cut hopefuls.

 We also see the latest Consumer Price Index (CPI) in the US. We need to see that it’s not spiking higher on Trump tariffs. Economists tip a 0.3% rise, giving a 2.4% headline inflation rate. While numbers like these won’t spook Wall Street, if they’re too high, it will spark inflation concerns causing stock price slides in the States (and here too). If these inflation readings are surprisingly low, then Wall Street will stress out about recession fears and, you guessed it, stocks will still fall.

US central bank boss Jerome Powell will speak to the market on Thursday too busy day! Market mavins will analyse every word to see if this supreme caller on US interest rates is worried about tariffs causing inflation or a recession. Last week, he refused a rate cut for the US, suggesting he’s more worried about Trump-created inflation. Powell and Trump aren’t mates, so we could see some reactions from the US President if Jerome unnerves Wall Street.

Friday:

Over Thursday and Friday, the Yanks will answer questions like: “are Trump’s tariff threats creating a US recession?”. The US statisticians will show us the US manufacturing, industrial production, housing and retail numbers that will be important for recession worriers and hand-wringers everywhere.

Keep watch for:

Any positive news out of the US-China trade talks being held in Switzerland. This the main game for stocks. A reasonable and sensible agreement on tariffs imposed by each country would be acceptable because of the side agreements that can make tariffs less than 145% possible!

These talks are important for both sides with the US President’s economy recording a 0.3% contraction in the March quarter. While the President blamed his predecessor Joe Biden, that’s only a story that Trump-lovers would swallow.

Yhese talks follow a surprise 8.1% rise in Chinese exports in April when US tariffs kicked in, CNBC reports that this was explained by “a jump in shipments to Southeast Asian nations, shrugging off the 21% drop in outbound goods to the U.S”.

Of course, these are early days, with the first Chinese freight ship to be hit by a 145% tariff now in a Los Angeles port. Seven ships with 12,000 containers carrying products for Amazon, Home Depot, Ikea, Ralph Lauren and Tractor Supply are now on US soil or water and are set for an exorbitant tariff slug.

While no one expects a deal to be forthcoming, every significant positive or negative development will be stock market impactful. And side agreements will be important. Americans wants access to critical minerals that China has big control over, and China is a very big lender to the US Government, but China really likes the US consumer and the businesses, such as Amazon and Apple, that do a lot of business with the world’s second biggest economy.

This from CNBC gives us an idea of what we might see this week between the US and China:

“Robin Xing, chief China economist at Morgan Stanley, projects that effective US tariff rates on Chinese goods could be lowered from the current 107% to a terminal rate of 45% by year-end.“Tianchen Xu, senior economist at Economist Intelligence Unit, expects the US and China to scale back their mutual weighted average tariff rates of around 50% in the near term.”

“That’s still elevated compared to the tariff rates of 10.9% on Chinese goods and 16% that China had imposed on American products before Trump returned to office, according to Xu’s estimates.”

I’m expecting economic data to not be so dramatically bad that stocks could recoil and start sliding again. The encouraging game changer would be a surprise, faster-than-expected deal from the Trump team and Beijing.

While this is unlikely, as long as the news coming out of Switzerland and later from Washington and Beijing implies a deal is on the horizon, stock prices and your super will keep tracking higher. Of course, if Donald has a trademark brain-explosion and goes back to treating China, the EU and other major trading partners as scared CEOs of companies he's going to crush, then we could have some real recession, inflation and stock market problems.

By the way, the RBA is likely to give a rate cut next week with all the above in mind, but if the worst-case scenario happens, with the global economy trumped by the US President’s over-the-top tariffs, then we’ll see four rate cuts here as unemployment goes above 5% and house prices, along with stock prices, head very much south!

While I’m not expecting this regrettable state of affairs, my ‘aerobeacon in my lighthouse’ will be on the lookout for any signs that we have to get ready for a shipwrecking of our investment portfolios, our super and our overall wealth.

Happy sailing!